Cioffi: My investors? What investors?

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Ralph Cioffi, the indicted former Bear Stearns hedge fund manager, is trying again to get an insider trading charge dismissed in advance of his upcoming criminal trial.

And this time his lawyer’s have come up with an interesting legal argument, which essentially is that a “hedge fund manager owes no fiduciary duty to its investors.” Rather, a hedge fund manager’s “fiduciary duty runs only to the hedge fund itself.”

Using this bit of twisted logic, Cioffi’s lawyers contend their client didn’t commit insider trading by secretly pulling some of his money out of the Bear funds before they collapsed because he had no duty to tell the investors he was making the withdrawl.

I’ve never been convinced that the insider trading charge against Cioffi is a strong one. But that’s because Cioffi didn’t pull all of his money out of the fund–only some of it.

But this argument that a hedge fund manager owes no fiduciary duty to his investors really stands things on its head. If the judge were to accept this argument and dismiss the insider trading charge, no investor could ever trust a hedge fund manager ever again.

Oh, in the court papers, Cioffi’s lawyers also say:

Never before has the government attempted to prosecute a hedge fund manager for insider trading for a redemption of his investment in the hedge fund he manages.

I’m assuming that claim is true. But hey, there’s a first time for everything.